Presentation on theme: "CPSS-IOSCO Principles for FMIs and TM Assessments Ana Giraldo"— Presentation transcript:
1CPSS-IOSCO Principles for FMIs and TM Assessments Ana Giraldo Guatemala - April 2013
2Agenda CPSS – IOSCO Principles Vs Thomas Murray’s Risks Key differencesComparison of CPSS-IOSCO, AGC and TMCPSS-IOSCO principles in TM public ratings2
3I. CPSS-IOSCO Principles vs Thomas Murray’s Risks
4Governance & Transparency CPSS-IOSCO vs TM RatingsPrincipleAsset CommitmentLiquidityCounterpartyAsset ServicingFinancialOperationalAsset SafetyGovernance & TransparencyGeneral DetailsPrinciple 1: Legal Basisü Principle 2: GovernanceüPrinciple 3: Framework for the comprehensive management of risksPrinciple 4: Credit RiskPrinciple 5: CollateralPrinciple 6: MarginPrinciple 7: Liquidity RiskPrinciple 8: Settlement FinalityPrinciple 9: Money SettlementPrinciple 10: Physical DeliveriesPrinciple 11: Central Securities DepositoriesPrinciple 12: Exchange-of-value Settlement SystemsRead the heading and point to the fact that no element is included in asset safety
5Governance & Transparency CPSS-IOSCO vs TM RatingsPrincipleAsset CommitmentLiquidityCounterpartyAsset ServicingFinancialOperationalAsset SafetyGovernance & TransparencyCSD on CSDPrinciple 13: Participant-default rules and proceduresüPrinciple 14: Segregation and PortabilityPrinciple 15: General Business RiskPrinciple 16: Custody and Investment RiskPrinciple 17: Operational RiskPrinciple 18: Access and Participation RequirementsPrinciple 19: Tiered Participation ArrangementsPrinciple 20: FMI LinksPrinciple 21: Efficiency and EffectivenessPrinciple 22: Communication Procedures and StandardsPrinciple 23: Disclosure of rules and Key ProceduresPrinciple 24: Disclosure of Market Data
6II. Key Differences Between Thomas Murray’s Assessments and IOSCO Self-Assessments
7Thomas Murray Key Differences with other Assessments Data Validation Asset Servicing RiskContinuous UpdatesData ValidationAdherence to best market practicesTransparencySeparate assessment per type of FMI
8Asset Servicing Risk Why Asset Servicing Risk is important? Trend: There is an increasing number of CSDs providing asset servicing and corporate actions-related services to participants.Risk: Asset servicing carries a high degree of risk given that it is a commercial activity. In many cases it can be provided in competition with custodians. It is also the area with the largest potential losses for a CSD.TM weighting: TM gives a high weighting to the overall risk score to asset servicing risk. In fact, it is the heaviest single weighted risk in our methodology.Involvement of CSDs: There is a varied degree of involvement in asset servicing ranging from simple interest payment distribution to complex corporate actions processing.Back
9Asset Servicing RiskWhy Asset Servicing Risk is important?Back
10Data Updates Continuous Updates Thomas Murray provides on-going surveillance on changes to the CSDs, CCPs and capital market infrastructures.Thomas Murray receives information directly from local sources such as support banks, CSDs, stock exchanges and regulators. There is also a (at least) monthly monitoring of websites to ensure developments are not missed.Daily newsflashes are sent to clients and other interested parties in respect of changes and developments in the marketplaces.A risk impact is added every time a piece of news has a relevant impact on any of the assessed entities.Assessments are updated and revised upon receipt of information. The ratings are also reviewed and taken to the Ratings Committee if a significant event takes place.There are also annual general updates with the co-operation of the CSDs and the support banks to validate the data.Back
11Permanent UpdatesNumber of Newsflashes Sent by Thomas MurrayBack
12Data Validation Validation Thomas Murray information is collected from CSDs but data is validated by some participants that are our support banks.The support banks provide an annual update and review of Thomas Murray assessments.Examples of support banks:
13Best Market Practice Adherence to best market practices Thomas Murray’s assessment methodology is based on best market practices rather than minimum standards.Thomas Murray provides a gap analysis that shows the CSD where it stands compared to best market practices.The rating scale is designed in a way that CSDs can determine how far they are from the best market practice in each risk.
14Transparency Transparency of methodology and reports Thomas Murray’s assessment methodology is published so CSDs can understand the basis they have been rated.TM methodology is prescriptive and detailed enough for CSDs to determine their strengths and weaknesses in each risk.TM reports are available to all our clients and public rating reports are publicly available.TM reports are also available to the CSDs once they are finalised/updated. Since the reports highlight the strength and weaknesses, CSDs can use them to decide areas to work on and issues to address.
15Separate Assessments Analysis per type of entity Thomas Murray undertakes separate assessments and analysis according to the type of infrastructure entity.Different types of risks apply to different type of infrastructure entity (e.g.CPSS-IOSCO principles for FMIs apply equally to all FMIs although some principles are not applicable to all (e.g Principle 6: Margin, only applies to CCPs).Back
16III. Comparison Between AGC, CPSS-IOSCO and TM on Key Issues
18IV. CPSS-IOSCO Principles for FMIs in TM Public Ratings
19Comment on Publicly Rated CSD PrincipleCPSS-IOSCOComment on Publicly Rated CSD4 – Credit RiskAn FMI should effectively measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes. An FMI should maintain sufficient financial resources to cover its credit exposure to each participant fully with a high degree of confidence.XXX participants do not have any credit exposure in the case of pre-funded on-exchange trades. For off-exchange settlements, there is full counterparty exposure if the participant chooses to settle on an FOP basis. If settled DVP, there is no risk of principal loss, but some consequential market losses may occur since there are no fails management mechanisms.While XXX doesn’t undertake a thorough check on participants, other agencies check that requirements are met.5 - CollateralAn FMI that requires collateral to manage its or its participants’ credit exposure should accept collateral with low credit, liquidity, and market risks. An FMI should also set and enforce appropriately conservative haircuts and concentration limits.XXX supports the settlement of repo and reverse repo transactions on the Exchange and accepts the deposit of securities as collateral.6 - MarginA CCP should cover its credit exposures to its participants for all products through an effective margin system that is risk-based and regularly reviewed.Not applicable as XXX does not act as central counterparty in the market.